Day two of Calvin Walker's fraud trial is under way in the federal courthouse Tuesday. Beaumont Independent School District's director of purchasing, Naomi Lawrence-Lee, heads for the security entrance after the lunch break. She had been on the stand all morning mostly answering questions about checks the school district wrote to Walker, purchase orders issued for projects he completed, and invoices he had submitted to the district. Dave Ryan/
Read more: http://www.beaumontenterprise.com/news/article/Walker-trial-continues-with-testimony-about-2348535.php#ixzz1fnG5fAQ9Dave Ryan/The Enterprise

Day two of Calvin Walker's fraud trial is under way in the federal...

Lamar University engineers, partner company representatives and investors disclosed the details of a new prototype device, an alert system for passenger vehicles, Monday morning. William "Bo"Kelley Jr., president of Kelley Emergency Alert Systems, answered questions about the new receiving device which has a range of 1000 ft and was located at the other end of a long table. The innovative in-vehicle emergency alert system is a life-saving device with state, national and international potential for which a patent is now pending. The device was invented by Harley Myler, chair of the Phillip M.Drayer Department of Electrical Engineering, after Kelley came to him with his original idea. Dave Ryan/The Enterprise
Photo: Dave Ryan

Lamar University engineers, partner company representatives and...

The FBI, Friday morning, searched the homes of Naomi Lawrence Lee BISD's purchasing director and William 'Bo' Kelley the former West Brook Booster Club president. An investigator is seen walking into Lee's home.
Photo taken Friday, April 04, 2014
Guiseppe Barranco/@spotnewsshooter
Photo: Guiseppe Barranco, Photo Editor

The FBI, Friday morning, searched the homes of Naomi Lawrence Lee...

Indicted from the FBI's recent investigation into BISD, Devin McCraney, pictured, and former comptroller Sharika Allison, not pictured, plead innocent Thursday morning in Zack Hawthorn's federal courtroom. The trial is set for early next month.
Photo taken Thursday,
Guiseppe Barranco/@spotnewsshooter
Photo: Guiseppe Barranco, Photo Editor

Indicted from the FBI's recent investigation into BISD, Devin...

Indicted from the FBI's recent investigation into BISD, Devin McCraney, not pictured, and former comptroller Sharika Allison, pictured, plead innocent Thursday morning in Zack Hawthorn's federal courtroom. The trial is set for early next month.
Photo taken Thursday,
Guiseppe Barranco/@spotnewsshooter
Photo: Guiseppe Barranco, Photo Editor

Although Beaumont ISD is answering to the Texas Education Agency for financial transgressions described in the agency's final investigative report, it could still face penalties for various violations of state and federal law related to its failure to protect the district's resources.

The outcome of the Texas Education Agency's months-long investigation into the Beaumont school district's finances is clear: The district was beset with waste, fraud and abuse.

What is not clear is who will be held legally responsible for that financial misconduct.

The TEA's final investigative report on BISD's finances issued Tuesday condemned the school district's superintendent and board of trustees for failing to protect the district's assets as outlined in the Texas Education Code.

The report also detailed various violations of state and federal laws for which higher authorities than the TEA will hold BISD responsible.

By law, the education agency must forward a copy of the report to federal and state law enforcement and regulatory agencies because it found evidence of wrongdoing, said TEA spokeswoman DeEtta Culbertson.

The agency will include recommendations in the report it sends to other agencies for any actions it considers necessary to enforce compliance or recover questioned costs.

TEA refused to disclose the information it passed along or to whom it sent the report because of its ongoing investigations into BISD. The other agencies that received the report also could have open investigations that could be jeopardized by the release of information, Culbertson said.

The report discusses ways BISD violated federal tax laws by not providing adequate documentation to vendors that would have ensured the district received the services for which it paid.

The forms BISD failed to issue to vendors - 1099s and W-9s - provide the district with proof it paid for services rendered. They are significant markers for investigators who are checking to see if money going out matches up with purchased services, said John Malcolm Bales, U.S. Attorney for the Eastern District of Texas, who had not read the report.

"There would be little incentive not to issue 1099s because it's a document that says you paid that expense," he said.

The TEA report also discusses violations of federal procurement laws committed when administrator Patricia Lambert approved payments of $454,404 in federal funds to two companies owned by her son. Lambert also failed to disclose her family relation to the companies doing business with BISD, the report states.

Bales said violations of procurement laws usually coincide with kickbacks of some kind. He mentioned a recent case in Plano where a school district employee pleaded guilty to setting up fraudulent companies and writing checks to them with district money.

With procurement, the question is: "Is this school district getting what it paid for?" Bales said.

Whether BISD failed to follow the law out of ignorance, arrogance or denial is a matter for investigators to determine, said David Kwok, an assistant professor at the University of Houston who specializes in white-collar crimes.

The TEA report did not indicate BISD knew about the alleged embezzlement committed by two former high-ranking finance officers, said Kwok, who reviewed the report.

A federal grand jury indicted Devin McCraney and Sharika Allison in January on charges of conspiracy and fraud. McCraney plans to enter into a plea agreement April 14. Allison could still go to trial in May.

That leaves two lines of investigation for authorities to follow: a failure to exercise the district's duty to protect its assets or a "willful blindness" of the holes in its internal controls.

"Willful blindness" means someone may have suspected illegal activities were going on but avoided determining the validity of that suspicion, Kwok said.

"Willful blindness is enough to assign responsibility," he said. "You didn't know what was going on, but you did everything not to know."

Kwok noted BISD states in its response that it could not have prevented the criminal acts of others.

"That's only sort of true," he said.

You cannot exercise control over others, but you also cannot willfully ignore evidence of wrongdoing, he said.

"Was there enough notice to someone in this process that something bad was going on? Is there evidence you actually avoided finding out?" Kwok said.

Investigators must determine where adherence to the law broke down within the district and who was responsible for that breakdown, like who should have reviewed Lambert's disclosure form and checked it was accurate.

If there is evidence, Gutheinz said, federal authorities will exhaust every resource at their disposal to unearth it.

"What the public normally doesn't see is all the work going on behind the scenes," he said. "Feds don't like to lose. They put everything into a case."

In this case, federal authorities could deploy auditors, computer specialists and financial advisers to scour records recovered through an electronic search warrant or subpoenas. They do not necessarily need to physically execute a search warrant to dig for information.

"When you're dealing with federal agencies, they're dedicated to that case," Gutheinz said. "They have an evidence room just for this case."

The result of the TEA report clearly demonstrates BISD did not properly monitor its finances, Kwok said. Where the fault for that failure lies is more difficult to discern.